Hormel sales drop as Jennie-O turkey unit faces 'challenges'

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Hormel Foods posted sales of $2.17 billion in the company's second quarter, down 5% from $2.3 billion in the same period a year ago, the company said in a press release.The maker of Spam, Skippy peanut butter and Muscle Milk had a profit of $211 million, a drop of 2%, from $215 million in the second quarter of 2016.

The company maintained its earnings guidance of $1.65 to $1.71 per share, but President and Chief Executive Officer​ Jim Snee said "pressure" at its Jennie-O Turkey Store unit would push its EPS to the lower end of that previously issued guidance.

"We expect the pressure on Jennie-O Turkey Store to continue for the remainder of the fiscal year," Snee said in the earnings report. "Despite ongoing challenges in the turkey industry, our balanced model allowed us to deliver earnings within 2% of last year’s results.”

But it continued to be hit by an oversupply of turkeys across the industry that pressured sales and profitability at its Jennie-O Turkey Store. Sales at the unit, Hormel's third-largest business, declined 8% to $388 million, while overall profitability slipped 29%. The company attributed these decreases to lower turkey commodity prices, pricing pressure from competing proteins and higher operating expenses.

Grocery products, Hormel's second-largest unit that is responsible for a fifth of its sales and nearly a quarter of its profit, was one of the few bright spots during the quarter. Sales surged 8% while profitability climbed 15%. The results reflect the 2016 addition of Justin's peanut butter products, as well as strong sales of its Wholly Guacamole and Hormel's signature Spam product.

Refrigerated foods, which contributes about half of Hormel's sales, posted a flat operating profit. This segment includes items such as bacon, party trays and Natural Choice deli meats.

Hormel has not been shy about making a deal, and its Justin's acquisition — which allowed the company to further tap into the snack space increasingly popular with consumers — is one such example. Snee said in March that Hormel is looking for strategic acquisitions. “Our balance sheet is pristine, and so we do have the capacity to do a multibillion dollar deal,” he told analysts at the time.

The company is searching for companies that “are aligned with our growth pillars for being more global, multi-cultural, healthy, holistic and on-the-go,” Snee added.

Such a deal could help Hormel offset some of the challenges facing its Jennie-O operations, while adding a new avenue of growth for the Minnesota-based company.